<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission File Number 0-11268
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2469172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Indiana Avenue and the Boardwalk
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 340-3400
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each class of the Registrant's Stock is as
follows:
Number of Shares Outstanding
November 7, 1996
----------------
5,046,064
Class A Stock (After deducting 16,436 shares of
Treasury Stock)
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Index to Form 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated
Financial Statements 3
Consolidated Balance Sheets at
September 30, 1996 and 1995 and
December 31, 1995 4
Consolidated Statements of Operations
for the three months ended September 30,
1996 and 1995 5
Consolidated Statements of Operations
for the nine months ended September 30,
1996 and 1995 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1996 and 1995 7
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
1
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated Financial Statements
- --------------------------------------------------------
The accompanying consolidated financial statements have been prepared by
The Claridge Hotel and Casino Corporation ("Corporation") without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, these financial statements contain all adjustments
necessary to present fairly the consolidated financial position of The Claridge
Hotel and Casino Corporation and its wholly-owned subsidiaries, The Claridge at
Park Place, Incorporated ("New Claridge") and Claridge Gaming Incorporated
("CGI") at September 30, 1996 and 1995 and December 31, 1995, and the results of
its operations for the three and nine months ended September 30, 1996 and 1995
and its cash flows for the nine months ended September 30, 1996 and 1995. All
adjustments made are of a normal recurring nature.
Although management believes that the disclosures included herein are
adequate to make the information contained herein not misleading, certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and the related disclosures contained in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended September
30, 1996 and 1995 are not necessarily indicative of the operating results to be
expected for the full year. Historically, the gaming industry in Atlantic City,
New Jersey has been seasonal in nature with peak demand months occurring during
the summer season.
3
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,605 35,747 37,964
Receivables, net (including $17,238 and
$14,879 at September 30, 1996 and 1995,
respectively and $15,391 at December 31,
1995, due from the Partnership) 18,391 16,808 15,756
Other current assets 3,364 2,987 4,151
-------- --------- ---------
Total current assets 32,360 55,542 57,871
------- -------- --------
Property and equipment, net (note 5) 35,828 24,468 20,615
Long-term receivables due from the
Partnership (note 4) 96,191 104,207 106,860
Intangible assets and deferred charges 2,717 2,930 3,054
Other assets 2,636 1,927 1,614
---------- --------- ---------
$169,732 189,074 190,014
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 5,094 3,880 3,330
Loan from the Partnership (note 6) 3,600 3,600 3,600
Other current liabilities (note 7) 29,827 32,940 30,485
--------- --------- ---------
38,521 40,420 37,415
--------- --------- ---------
Long-term debt (note 8) 85,000 85,000 85,000
Deferred rent due to the Partnership 28,559 30,747 31,445
Deferred income taxes (note 10) 1,723 7,123 8,686
Other noncurrent liabilities (note 9) 19,341 20,229 20,171
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings (deficit) (8,465) 502 2,244
Treasury stock, 16,436 Class A Shares at cost
at September 30, 1996, December 31, 1995
and September 30, 1995, respectively -0- -0- -0-
--------- --------- ---------
Total stockholders' equity (deficiency) (3,412) 5,555 7,297
--------- --------- ---------
$ 169,732 189,074 190,014
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended September 30, 1996 and 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Casino $ 42,757 47,074
Hotel 2,977 2,935
Food and beverage 5,960 5,607
Interest from the Partnership 4,000 4,271
Interest, other 107 466
Other 694 576
-------- ---------
56,495 60,929
Less promotional allowances (note 3) 5,798 4,771
-------- --------
Net revenues 50,697 56,158
------- -------
Costs and expenses:
Casino 25,942 24,660
Hotel 602 718
Food and beverage 3,046 3,352
Other 899 905
Rent expense to the Partnership 9,496 9,277
Rent expense, other 372 378
General and administrative 7,309 7,058
Gaming taxes 3,416 3,761
Reinvestment obligation expense 164 291
Provision for uncollectible accounts 70 (132)
Depreciation and amortization 896 739
Interest expense 2,605 2,058
-------- --------
Total costs and expenses 54,817 53,065
------- -------
(Loss) income before income taxes (4,120) 3,093
Income tax (benefit) expense (1,467) 1,411
---------- ---------
Net (loss) income $ (2,653) 1,682
========= =========
Net (loss) income per share (based on 5,046,064
and 5,048,654 weighted average shares
outstanding for the three months ended
September 30, 1996 and 1995, respectively) $ (.53) .33
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1996 and 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Revenue:
Casino $125,405 128,419
Hotel 7,038 7,203
Food and beverage 15,927 15,130
Interest from the Partnership 12,119 13,001
Interest, other 638 1,320
Other 1,868 1,567
------- --------
162,995 166,640
Less promotional allowances (note 3) 14,667 12,362
------- --------
Net revenues 148,328 154,278
------- --------
Costs and expenses:
Casino 77,063 69,534
Hotel 2,051 2,420
Food and beverage 8,601 9,099
Other 2,345 2,347
Rent expense to the Partnership 28,871 28,156
Rent expense, other 1,113 1,134
General and administrative 22,785 20,199
Gaming taxes 10,020 10,260
Reinvestment obligation expense 588 1,292
Provision for uncollectible accounts 174 (18)
Depreciation and amortization 2,337 2,149
Interest expense 6,745 7,268
--------- ---------
Total costs and expenses 162,693 153,840
--------- ---------
(Loss) income before income taxes (14,365) 438
Income tax (benefit) expense (5,398) 604
--------- ----------
Net loss $ (8,967) (166)
========== =========
Net loss per share (based on 5,046,064 and
5,052,386 weighted average shares outstanding
for the nine months ended September 30, 1996
and 1995, respectively) $ (1.78) (.03)
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,967) (166)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,337 2,149
Deferred rent to the Partnership (2,188) (1,688)
Deferred interest receivable and
discount from the Partnership (1,123) (977)
Reinvestment obligation expenses 588 1,292
Gain on disposal of assets (138) (42)
Deferred income taxes (5,400) 801
Change in assets and liabilities:
Receivables, net, excluding current
portion of long-term receivables 524 (13)
Other current assets, excluding current portion
of CRDA credit (377) 2,769
Accounts payable 1,214 548
Other current liabilities (3 113) (136)
Other noncurrent liabilities (888) 171
--------- ---------
Net cash flows (used in) provided by operating activities (17,531) 4,708
--------- ---------
Cash flows from investment activities:
(Increase) decrease in intangible assets and deferred charges (195) 624
Additions to property and equipment (13,335) (13,672)
(Increase) decrease in other assets (1,297) 2,020
Proceeds from disposition of property 184 75
Increase in long-term receivables (3,312) (1,984)
Receipt of long-term receivables 10,344 8,949
--------- ---------
Net cash flows used in investment activities (7,611) (3,988)
--------- ---------
(Decrease) increase in cash and cash equivalents (25,142) 720
Cash and cash equivalents at beginning of period 35,747 37,244
--------- ---------
Cash and cash equivalents at end of period $ 10,605 37,964
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Notes to Consolidated Financial Statements
1. Significant Events
------------------
As discussed in this Form 10-Q under "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources", there is considerable doubt as to
whether the Corporation will be able to meet its obligation to pay
interest due on February 1, 1997 on its 11 3/4% Notes due 2002. As a
result, the Corporation is in the process of formulating a proposal to
the holders of the Notes to restructure the Corporation's obligations
under the Notes.
2. Basis of Presentation
---------------------
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles. The consolidated financial
statements include the accounts of the Corporation and its wholly-owned
subsidiaries, New Claridge and CGI. All material intercompany accounts
and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to the 1996 presentation.
3. Promotional Allowances
----------------------
The retail value of complimentary rooms, food and beverages and other
complimentaries furnished to patrons is included in gross revenues and
then deducted as promotional allowances. In addition, the estimated cost
of providing such promotional allowances to casino patrons for the three
and nine months ended September 30, 1996 and 1995 has been allocated to
casino operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hotel $ 1,012 887 2,593 2,178
Food and beverage 3,262 2,587 9,061 7,138
Other (Entertainment) 489 144 1,166 601
------- ------ ------- -------
Total costs allocated to
casino operating expenses $ 4,763 3,618 12,820 9,917
======= ====== ====== ======
</TABLE>
8
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
4. Long-Term Receivables
---------------------
Long-term receivables consist of the following amounts due from
Atlantic City Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%, maturities through
September 30, 2000 (net of $8,692,000 discount and
$10,164,000 discount at September
30, 1996 and 1995 respectively, and $9,815,000
discount at December 31, 1995) $ 55,308 63,185 65,336
Deferred Expandable Wraparound Mortgage
interest receivable, due September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 18,104 16,527 16,495
Expansion/Construction promissory note, 14% 2,779 4,495 5,029
--------- --------- ---------
$ 96,191 104,207 106,860
========= ========= =========
</TABLE>
5. Property and Equipment
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Gaming equipment $ 19,154 19,186 19,209
Land and land improvements 8,100 8,100 8,100
Building 19,983 -0- -0-
Construction in progress -0- 8,204 3,840
Leasehold improvements 745 745 745
Capital lease asset 613 613 613
Other FF&E 102 -0- -0-
-------- ------- -------
48,697 36,848 32,507
Less accumulated depreciation and amortization 12,869 12,380 11,892
------- ------- -------
Net property and equipment $ 35,828 24,468 20,615
======== ======= =======
</TABLE>
Building and construction in progress represent the costs incurred
associated with the construction of New Claridge's self-parking garage
facility, which initially opened on June 28, 1996. Interest costs
related to the construction of the garage facility were capitalized, and
are being amortized over the estimated useful life of the garage (39
years). Total interest capitalized as of the opening of the garage on
June 28, 1996 was $2,207,000; as of December 31, 1995 and September 30,
1995, capitalized interest was $1,138,000 and $781,000, respectively.
9
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
6. Loan from the Partnership
-------------------------
In accordance with the terms of the Restructuring Agreement, on June 16,
1989 the Partnership loaned to New Claridge $3.6 million, which
represented substantially all cash and cash equivalents remaining in the
Partnership other than funds needed to pay expenses incurred through the
closing of the restructuring. This loan is evidenced by an unsecured
promissory note and will become payable (i) upon a sale or refinancing
of the Claridge; (ii) upon full or partial satisfaction of the
Expandable Wraparound Mortgage; and (iii) upon full satisfaction of any
first mortgage then in place. Interest, which accrues at 12% per annum,
is payable in full upon maturity. As of September 30, 1996, such
interest, which is included in other current liabilities, amounted to
$3,150,000.
7. Other Current Liabilities
-------------------------
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Deferred rent, current $ 15,078 15,078 15,078
Accrued payroll and related benefits 6,665 7,279 7,298
Accrued interest, First Mortgage Notes 1,665 4,161 1,665
Accrued interest due to Partnership 3,150 2,826 2,718
Auto and general liability reserves 1,008 1,037 1,125
Other current liabilities 2,261 2,559 2,601
---------- --------- ---------
$ 29,827 32,940 30,485
========== ========= =========
</TABLE>
The amount of deferred rent as of September 30, 1996 of $15,078,000
represents the maximum deferral allowed in accordance with the Operating
Lease Agreement and Expansion Operating Lease Agreement, as amended. The
deferred rent will become payable (i) upon a sale or refinancing of the
Claridge; (ii) upon full or partial satisfaction of the Expandable
Wraparound Mortgage; and (iii) upon full satisfaction of any first
mortgage then in place.
8. Long-Term Debt
--------------
On January 31, 1994, the Corporation completed an offering of $85
million of Notes due 2002, bearing interest at 11 3/4%. The Notes are
secured by (i) a non-recourse mortgage granted by the Partnership
representing a first lien on the Hotel Assets, (ii) a pledge granted by
the Corporation of all outstanding shares of capital stock of New
Claridge, and (iii) a guarantee by New Claridge. New Claridge's
guarantee of the Notes is secured by a collateral assignment of the
second lien Expandable Wraparound Mortgage, and by a lien on the
Claridge's gaming and other assets, which lien will be subordinated to
liens that may be placed on those gaming and other assets to secure any
future revolving credit line arrangement. Interest on the Notes is
payable semiannually on February 1 and August 1 of each year, commencing
August 1, 1994. A portion of the net proceeds of $82.2 million was used
to repay in full the Corporation's outstanding debt under the Loan
Agreement, including the outstanding balance of the Corporation's
revolving credit line, which was secured by the First Mortgage. In
conjunction with the full satisfaction of the Loan Agreement, the
Corporation's $7.5 million revolving credit line arrangement was
terminated.
10
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
9. Other Noncurrent Liabilities
----------------------------
Pursuant to the Restructuring Agreement, Del Webb Corporation ("Webb")
retained an interest, which was assigned to a trustee for the benefit of
the Valley of the Sun United Way on April 2, 1990, equal to $20 million
plus interest at a rate of 15% per annum, compounded quarterly,
commencing December 1, 1988, in any proceeds ultimately recovered from
operations and/or the sale or refinancing of the Claridge facility in
excess of the first mortgage loan and other liabilities ("Contingent
Payment"). Consequently, New Claridge has deferred the recognition of
$20 million of forgiveness income with respect to the Contingent Payment
obligation. Interest on the Contingent Payment has not been recorded in
the accompanying consolidated financial statements since the likelihood
of paying such amount is not considered probable at this time. As of
September 30, 1996, accrued interest would have amounted to
approximately $43.4 million.
In connection with the restructuring, Webb agreed to grant those
investors in the Corporation and the Partnership ("Releasing
Investors"), from whom Webb had received written releases from all
liabilities, rights ("Contingent Payment Rights") to receive certain
amounts to the extent available for application to the Contingent
Payment. Approximately 84% in interest of the investors provided
releases and became Releasing Investors. Payments to Releasing Investors
are to be made in accordance with a schedule of priorities, as defined
in the Restructuring Agreement.
On February 23, 1996, the Corporation acquired an option to purchase, at
a discount from the carrying value, the Contingent Payment. The purchase
price of the option of $1 million was recorded as an offset to the
Contingent Payment liability which is included in other noncurrent
liabilities on the Corporation's consolidated balance sheet. The option
may be exercised any time prior to December 31, 1997. Upon exercise of
the option, the purchase price of the Contingent Payment would be $10
million, plus interest at 10% per annum for the period from January 1,
1997 to the date of payment of the purchase price if the purchase occurs
after December 31, 1996. As a result, if the option is exercised, any
obligation to pay the accrued interest, as discussed above, would be
eliminated, except in respect of the obligation to the Releasing
Investors. The purchase price may also increase in an amount not to
exceed $10 million if future distributions to Releasing Investors exceed
$20 million.
Upon exercise of the option, it is anticipated that the Contingent
Payment will be canceled so that neither the Corporation nor the
Partnership will have any obligation to make any payment in respect of
the Contingent Payment before making a distribution to shareholders or
limited partners. Upon the purchase and cancellation, however, the
Corporation and the Partnership will remain obligated to make payments
to the Releasing Investors, in respect of the Contingent Payment Rights,
before any distribution may be made to shareholders or limited partners.
These payments would be required to be in the same amounts as if the
Contingent Payment had not been purchased and cancelled. As a result, it
is not likely that shareholders or limited partners who are not
Releasing Investors will receive any distribution from the Corporation
or the Partnership. In the aggregate, Releasing Investors are entitled
to receive up to an amount equal to approximately 72% of the Contingent
Payment.
Under the terms of the option, upon purchase of the Contingent Payment,
the Corporation and/or the Partnership are required to make
distributions in excess of $7 million to the Releasing Investors. The
Corporation and the Partnership have agreed to cooperate in the purchase
of the option and the Contingent Payment, with each contributing
one-half of the purchase price of the option and each anticipated to
contribute one-half of the purchase price of the Contingent Payment. A
portion of the Partnership's contribution will be contributed through
additional abatements of basic rent payments due under the Operating
Lease and Expansion Operating Lease.
11
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
10. Income Taxes
------------
The Corporation recorded an income tax benefit of $5,398,000 for the
nine months ended September 30, 1996 which represents the tax benefit of
losses which the Corporation believes will more likely than not be
realized.
During 1995, the Corporation received notice from the Internal Revenue
Service ("IRS") asserting deficiencies in Federal corporate income taxes
for the Corporation's 1990 and 1991 taxable years. Many of the proposed
adjustments to the Corporation's tax returns have been settled with no
adverse impact to the Corporation's consolidated financial statements.
There is a remaining IRS asserted deficiency for the 1990 and 1991
taxable years. In October 1996, the IRS sent the Corporation a statutory
notice of deficiency for the Corporation's 1990 and 1991 taxable years.
The Corporation intends to file a petition with the United States Tax
Court requesting a redetermination of the asserted deficiency. The
Corporation believes the ultimate resolution of the case will not result
in a material impact on the Corporation's consolidated financial
statements.
11. Claridge License Renewal
------------------------
On September 22, 1995, New Claridge was issued a four-year casino
license by the New Jersey Casino Control Commission (the "Commission")
for the period commencing September 30, 1995.
12. Recently Adopted Accounting Pronouncements
------------------------------------------
During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS
121") and No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
SFAS 121 requires that a review for impairment be performed whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. In performing the review for
recoverability, the company should evaluate the future undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition. The adoption of SFAS 121 on January 1, 1996 did not require
any impairment to be recognized during the nine months ended September
30, 1996.
SFAS 123 requires either the application of fair value based method of
accounting or additional proforma disclosures for stock-based
compensation plans. The adoption of SFAS 123 on January 1, 1996 had no
effect on the Corporation's consolidated financial position or results
of operations for the three and nine months ended September 30, 1996.
12
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
13. Other Events
------------
On June 28, 1996, the Corporation opened its new $28 million,
1,200-space self parking garage. On July 10, 1996, the facility was
closed as a result of a fatal accident which occurred in the garage. The
self-parking garage was reopened on September 20, 1996 when certain
structural enhancements were completed and all necessary approvals of
the enhancements were obtained.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended September 30, 1996
- -------------------------------------------------------------------
The Corporation had a loss of $2,653,000, net of income tax benefit of
$1,467,000, for the three months ended September 30, 1996, compared to income of
$1,682,000, net of income tax expense of $1,411,000, for the same period in
1995.
Casino revenue (the difference between amounts wagered by and amounts
paid to casino patrons) earned by the Claridge during the third quarter of 1996
totaled $42,757,000, a decrease of 9.2% from casino revenues earned during the
third quarter of 1995. Casino revenues earned by all Atlantic City properties as
reported for the three months ended September 30, 1996 were slightly higher than
revenues earned during the same period of 1995. On July 10, 1996, the Claridge's
$28 million self-parking garage, which had been opened on June 28, 1996, was
closed due to a fatal accident; the self-parking garage was not reopened until
September 20, 1996, when certain structural enhancements were completed. As a
result of not having the use of the self-parking garage during the busy summer
season, the Claridge was unable to fully take advantage of certain promotional
programs designed to capture the more profitable drive-in casino patron.
Competition for casino patrons remained heightened during the third quarter of
1996, as the many recently expanded casinos and the newly-opened Trump World's
Fair Casino, strived to acquire and maintain their "fair share" of the casino
revenue market. In addition, major infrastructure improvements in Atlantic City
have commenced in connection with the construction of the new Convention Center
and the corridor project linking the Center to the boardwalk; as a result, there
was considerable traffic congestion on roads leading into and around Atlantic
City during the third quarter, contributing to the relatively disappointing
citywide casino results.
Claridge table games revenue for the third quarter of 1996 was
$10,007,000, a decrease of 4.3% from table games revenue earned during the third
quarter of 1995. Although table games drop (the amount of gaming chips purchased
by patrons) during the third quarter of 1996 increased 6.2% over the same period
of 1995, the "hold" percentage (the ratio of win to drop) decreased to 13.1% in
the third quarter of 1996 from 14.6% in the third quarter of 1995. Table games
drop activity increased in 1996 as a result of the introduction of several new
player development programs, including a junket program and the offering of
gaming chip coupons, as well as the introduction of the popular game "Let It
Ride Poker". Citywide table games revenue as reported for the third quarter of
1996 increased 1.6% over the same period of 1995
Slot machine revenue earned by the Claridge during the third quarter of
1996 totaled $32,750,000, reflecting a 10.6% decrease from slot machine revenues
earned in the third quarter of 1995. This decrease was primarily due to
increased competition as a result of the increased casino floor space at other
Atlantic City properties compared to last year, most notably the Trump World's
Fair Casino, which opened in May 1996 with 1,500 slot machines and 33 table
games. Slot machine revenues earned by all Atlantic City casinos as reported for
the three months ended September 30, 1996 increased slightly over the same
period of 1995. During the third quarter of 1996, the average number of slot
machines available citywide increased by approximately 3,800 machines, or 13.0%,
over the same period of 1995; the average number of slot machines available at
the Claridge during the third quarter of 1996 remained consistent with the third
quarter of 1995.
Competition for attracting the bus passenger market continued citywide
during the third quarter of 1996, in the form of increased coin incentives
offered to passengers arriving by bus. Due to its dependency on the bus market,
the Claridge has had to remain competitive with the incentives offered by other
Atlantic City casinos in order to maintain its share of this market. In the
third quarter of 1996, bus coin incentives averaged approximately $17 per
passenger, compared to approximately $12 per passenger in the third quarter of
1995.
14
<PAGE>
In total, during the three months ended September 30, 1996, $4,201,000 of coin
incentives were issued to 254,000 bus passengers, compared to $3,385,000 of coin
incentives issued to 280,000 bus passengers in the third quarter of 1995. In
addition, the Claridge offers promotional incentives to existing customers, in
the form of coin to play slot machines and gaming chips to play table games. In
1995, the Claridge also offered incentives to prospective customers who were
identified based on demographic models; analysis of the results of this program
resulted in a reduction of prospecting efforts, starting in late 1995. During
the third quarter of 1996, promotional incentives issued through these direct
mail programs totaled $3,208,000, compared to $3,656,000 in the third quarter of
1995.
Hotel revenues for the third quarter of 1996 were $2,977,000, in line
with hotel revenues for the same period of 1995. During the third quarter of
1996, hotel occupancy was 99.4%, with an average room rate of $65; this was
comparable to the occupancy and average room rate during the same period of 1995
of 99.9% and $63, respectively. During the second quarter of 1996, the number of
hotel rooms available in Atlantic City increased as a result of the opening of
the Tropicana's new tower which includes approximately 600 hotel rooms, and the
opening of the Trump World's Fair Casino, with approximately 500 hotel rooms.
Food and beverage revenues for the third quarter of 1996 of $5,960,000 were 6.3%
higher than the third quarter of 1995, due to a higher average price per meal
($8.27 in 1996 compared to $6.90 in 1995), as a result of an increase in the
buffet price. The number of covers (meals served) decreased to 515,000 in the
third quarter of 1996, from 553,000 in the same period of 1995. Other revenues
during the third quarter of 1996 of $694,000 increased over other revenues of
$576,000 during the same period of 1995 due primarily to a more aggressive
entertainment policy, which resulted in an increase in showroom revenues.
Promotional allowances, which represent the value of goods and services provided
free of charge to casino customers under various marketing programs, increased
to $5,798,000 for the three months ended September 30, 1996, from $4,771,000 for
the same period of 1995, as a result of the increased efforts to maintain casino
revenue market share.
Total costs and expenses for the three months ended September 30, 1996
of $54,817,000 were 3.3% higher than expenses during the third quarter of 1995.
Casino operating expenses for the third quarter of 1996 increased over the
second quarter of 1995 due to the increase in coin incentive costs, combined
with the increase in the cost of providing promotional allowances to casino
patrons. Depreciation and amortization expense for the third quarter of 1996
increased over the same period of 1995 as a result of the opening of the
self-parking garage on June 28, 1996; the cost of the garage will be depreciated
over 39 years. Interest expense for the third quarter of 1996 was higher than
the same period of 1995 due to the capitalization of interest during the
construction of the self-parking garage in 1995.
Results of Operations for the Nine Months Ended September 30, 1996
- ------------------------------------------------------------------
The Corporation had a loss of $8,967,000, net of income tax benefit of
$5,398,000, for the nine months ended September 30, 1996, compared to a loss of
$166,000, net of income tax expense of $604,000, for the same period in 1995.
Casino revenue earned by the Claridge for the first nine months of 1996
was $125,405,000, a decrease of 2.3% from casino revenues earned in the same
period of 1995. Casino revenues earned by all Atlantic City properties as
reported for the nine months ended September 30, 1996, increased 2.5% over the
same period of 1995. Citywide casino revenues were adversely affected in the
first quarter of 1996 by several severe winter storms, most notably the January
blizzard, which blanketed the Northeastern United States with a record amount of
snow; this compared to the mild weather conditions experienced in the first
quarter of 1995. In addition, citywide casino capacity has continued to increase
over the total capacity available in 1995, reflected in a 7.8% increase in the
average casino square footage, and a 9.6% increase in the average number of slot
15
<PAGE>
machines, including the opening of the Trump World's Fair Casino in May 1996.
These expansions have resulted in heightened efforts among the Atlantic City
casinos to compete for market share.
Table games revenue earned by the Claridge during the nine months ended
September 30, 1996 was $30,460,000, a 4.1% increase over table games revenue
earned in the same period of 1995. This increase resulted from a 7.3% increase
in table games drop over the first nine months of 1995 due to the increased
table games player development efforts, partially offset by a decrease in the
hold percentage, to 14.9% during the first nine months of 1996, from 15.3%
during the same period of 1995. Citywide table games revenue, as reported, for
the first nine months of 1996 increased 2.7% over the same period of 1995.
Slot machine revenue earned by the Claridge during the nine months ended
September 30, 1996 was $94,945,000, a 4.2% decrease from slot revenues earned
during the same period of 1995 of $99,147,000. Citywide slot machine revenues,
as reported, for the first nine months of 1996 increased 2.5% over the same
period of 1995. Contributing to the increase in citywide slot revenues during
the first nine months of 1996 was the 9.6% increase in the average number of
slot machines available over the same period of 1995, including the addition of
approximately 1,500 new machines at the Trump World's Fair; the average number
of slot machines available at the Claridge during the first nine months of 1996
remained consistent with the average number available during the same period of
1995.
Coin incentives issued to patrons arriving at the Claridge by bus during
the nine months ended September 30, 1996 averaged $19 per passenger, compared to
an average of $12 per passenger in the first nine months of 1995. In total,
$15,313,000 of coin incentives were issued to 803,000 bus passengers during the
nine months ended September 30, 1996, compared to $8,729,000 issued to 718,000
passengers in the same period of 1995. In addition, during the first nine months
of 1996, the Claridge issued $8,404,000 in coin, matched play, and gaming chip
incentives to patrons through its direct mail programs, compared to $9,650,000
issued during the same period of 1995, which also included incentives issued
through prospecting efforts.
Hotel revenues for the nine months ended September 30, 1996 totaled
$7,038,000, compared to $7,203,000 in the same period of 1995. Hotel occupancy
for the first nine months of 1996 was 94%, with an average room rate of $55,
compared to occupancy of 94% and an average room rate of $57 during the same
period of 1995. Total food and beverage revenues for the nine months ended
September 30, 1996 were $15,927,000 compared to $15,130,000 during the same
period of 1995. In total 1,401,000 covers were served during the first nine
months of 1996 at an average price per cover of $7.77, compared to 1,336,000
covers and an average cover price of $7.53 during the same period of 1995. Other
revenues earned during the first nine months of 1996 of $1,868,000 increased
over the same period of 1995 primarily due to an increase in showroom revenues
as a result of the more aggressive entertainment policy in 1996. Promotional
allowances during the nine months ended September 30, 1996 were $14,667,000,
compared to $12,362,000 during the nine months ended September 30, 1995; this
increase, as was also reflected in the results for the third quarter, was due to
increased usage of promotional allowances as a marketing effort to maintain
casino revenue market share.
Total costs and expenses for the nine months ended September 30, 1996
were $162,693,000, a 5.8% increase over expenses during the same period of 1995,
primarily as a result of the increase in coin incentives issued through the bus
program. In addition, general and administrative costs for the nine months ended
September 30, 1996 reflect a 12.8% increase over the same period of 1995,
primarily resulting from increased advertising expenditures. Interest expense
for the first nine months of 1996 decreased from the same period of 1995 due to
the capitalization of interest related to the construction of the self-parking
garage in 1995.
16
<PAGE>
Liquidity and Capital Resources
- -------------------------------
On January 31, 1994, the Corporation completed an offering of $85
million of Notes, due 2002, bearing interest at 11 3/4%. The Notes are secured
by (i) a non-recourse mortgage granted by the Partnership representing a first
lien on the Hotel Assets, (ii) a pledge granted by the Corporation of all
outstanding shares of capital stock of New Claridge, and (iii) a guarantee by
New Claridge. New Claridge's guarantee of the Notes is secured by a collateral
assignment of the second lien Expandable Wraparound Mortgage, and by a lien on
the Claridge's gaming and other assets, which lien will be subordinated to liens
that may be placed on those gaming and other assets to secure any future
revolving credit line arrangement. Interest on the Notes is payable semiannually
on February 1 and August 1 of each year, commencing August 1, 1994.
A portion of the net proceeds of $82.2 million, after deducting fees and
expenses, was used as follows:
(i) to repay in full the Corporation's outstanding debt under the
Revolving Credit and Term Loan Agreement (the "Loan Agreement"),
including the outstanding balance of the Corporation's revolving
credit line, which was secured by the First Mortgage. In
conjunction with the full satisfaction of the Loan Agreement, the
Corporation's $7.5 million revolving credit line arrangement was
terminated. The Corporation has been seeking to obtain a new line
of credit arrangement, however, to date such attempts have been
unsuccessful;
(ii) to fund the cost of a 12,000 square foot expansion of the
Claridge's casino capacity, the addition of approximately 500
slot machines, and the relocation of two restaurants and their
related kitchen areas. The total cost of this expansion, which
became fully operational on June 30, 1994, was approximately
$12.7 million; and
(iii) the acquisition of land, at a cost of $7.5 million, adjacent to
New Claridge's existing valet-parking facility, which was used
for the construction of a self-parking facility. Through
September 30, 1996, approximately $19.1 million had been expended
to fund the cost of the garage, which opened on June 28, 1996;
the total cost of the garage is expected to be approximately $20
million, excluding the cost of interest capitalized during the
construction period.
In addition, on February 23, 1996, the Corporation acquired an option to
purchase, at a discount from the carrying value, the Contingent Payment, which
was granted in 1989 and now held in a trust for the benefit of the Valley of the
Sun United Way (see Note 9, Other Noncurrent Liabilities). The purchase price of
the option was $1 million, and the option may be exercised any time prior to
December 31, 1997. Upon exercise of the option, the purchase price of the
Contingent Payment would be $10 million, plus interest at 10% per annum for the
period January 1, 1997 to the date of the payment of the purchase price, if the
purchase occurs after December 31, 1996. The purchase price may also increase if
future distributions to Releasing Investors exceed certain amounts.
At September 30, 1996, the Corporation had a working capital deficit of
$6,161,000 as compared to working capital of $15,122,000 at December 31, 1995.
This decrease in working capital is principally attributable to a decrease in
cash and cash equivalents of $25,142,000 (primarily due to payments for the
construction of the self-parking garage and interest due on the First Mortgage
Notes), an increase in accounts payable of $1,214,000 (primarily due to accruals
related to the construction of the self-parking garage), offset by an increase
in accounts receivable of $1,583,000 (principally the current portion of the
Expandable Wraparound Mortgages due from the Partnership), a decrease in accrued
payroll and related benefits of $614,000, and a decrease in interest payable on
the First Mortgage Notes of $2,496,000. Working capital at September 30, 1995
17
<PAGE>
was $20,456,000. Current liabilities at September 30, 1996 and December 31, 1995
included deferred rental payments of $15,078,000, and a $3.6 million loan from
the Partnership plus accrued interest thereon of $3,150,000 at September 30,
1996 and $2,826,000 at December 31, 1995. These amounts will only be payable
upon (i) a sale or refinancing of the Claridge; (ii) full or partial
satisfaction of the Expandable Wraparound Mortgage; and (iii) full satisfaction
of any first mortgage then in place. If these amounts were not included in
current liabilities, the Corporation's working capital at September 30, 1996 and
December 31, 1995 would have been $15,667,000 and $36,626,000, respectively.
During the first nine months of 1996, the Corporation's working capital
was reduced substantially as a result of significant operating losses during
that period, as well as significant capital expenditures for construction of the
self-parking garage, with cash flows used in operating activities (i.e.,
negative cash flow) amounting to $17,531,000, and cash flows used in investment
activities during that period amounting to $7,611,000. During the same period,
the Corporation's Adjusted EBITDA (as defined below) was only $2,338,000
compared to $17,431,000 for the first nine months of 1995. While expenditures
for construction of the self-parking garage have largely been completed, the
factors that contributed to the negative cash flow and substantially reduced
Adjusted EBITDA for the first nine months of 1996, including increased and new
competition in the Atlantic City casino market, appear to be continuing.
While the Corporation's operating results have improved somewhat and
could continue to improve over the remainder of the year with the reopening of
its self-parking garage in mid-September, the Corporation anticipates that it is
more likely for there to be a continuation of the current level of operating
results for the foreseeable future. Although the Corporation has taken steps to
conserve its cash by reducing various operating expenses, it is unlikely that
the Corporation will be able to meet its obligation to pay interest due on
February 1, 1997 on its 11 3/4% Notes due 2002. As a result, the Corporation, in
consultation with its financial advisor, Dillon, Read & Co., Inc., is in the
process of formulating a proposal to the holders of the Notes to restructure the
Corporation's obligations under the Notes as outlined in Exhibit A to this Form
10-Q. In broad terms, the proposed restructuring may include a reduction in the
debt obligations of the Corporation, together with restructuring of certain of
the Corporation's arrangements with the Partnership, including abating rent
payable under the Operating Lease with the Partnership and extending the term of
the Expandable Wraparound Mortgage. Any such restructuring may be accomplished
in connection with a "prepackaged" bankruptcy proceeding involving the
Corporation and its subsidiaries to which the principal creditors of the
Corporation and its subsidiaries have agreed. If the Corporation is unable to
reach agreement with the holders of the Notes and other significant creditors
and with the Partnership regarding restructuring of the Corporation's
obligations, it is likely that the Corporation will need to seek protection from
its creditors in a reorganization proceeding under Chapter 11. In addition, the
Corporation, together with Dillon, Read & Co., Inc., is pursuing other strategic
alternatives, including a possible sale of the company.
Assuming that the Corporation does not pay interest due on its 11 3/4%
Notes due 2002, management of the Corporation believes that the Corporation has
sufficient liquidity to meet its other obligations in the ordinary course of its
business. Similarly, if the Corporation's obligations to the holders of the
Notes and to the Partnership are restructured as discussed above, management of
the Corporation believes that the Corporation will have sufficient liquidity to
meet its obligations on any restructured debt that replaces the Notes and to the
Partnership in the ordinary course of its operations. There can, however, be no
assurance that this outcome will result.
For the nine months ended September 30, 1996, cash flows used in operating
activities were $17,531,000, compared to cash flows provided by operating
activities of $4,708,000 for the same period of 1995; the increase in cash used
in operating activities was principally due to the increase in pre-tax net loss.
18
<PAGE>
Cash flows used in investment activities for the nine months ended September 30,
1996 and 1995 were $7,611,000 and $3,988,000, respectively. Cash flows used in
investment activities in the first nine months of 1996 for additions to property
and equipment include expenditures for the construction of the self-parking
garage facility; in the first nine months of 1995, additions to property and
equipment included the cost of the acquisition of the land on which the garage
facility is being constructed.
For the nine months ended September 30, 1996, the Corporation's
"Adjusted EBITDA" was $2,338,000, compared to $17,431,000 for the same period of
1995. "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, and other non-cash items. "Adjusted EBITDA" is equal
to "EBITDA" plus rent expense to the Partnership, less interest income from the
Partnership, less "Net Partnership Payments", which represent the Corporation's
net cash outflow to the Partnership. Adjusted EBITDA is used by the Corporation
to evaluate its financial performance in comparison to other gaming companies
with more traditional financial structures. Adjusted EBITDA may be used as one
measure of the Corporation's historical ability to service its debt, but should
not be considered as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity, or to other consolidated income or cash flow statement data, as are
determined in accordance with generally accepted accounting principles.
The Hotel Assets are owned by the Partnership and leased by the
Partnership to New Claridge under the terms of the Operating Lease originally
entered into on October 31, 1983, and the Expansion Operating Lease, which
covered the expansion improvements made to the Claridge in 1986. The initial
terms of both leases are scheduled to expire on September 30, 1998 and each
lease provides for three 10-year renewal options at the election of New
Claridge. The Operating Lease requires basic rental payments to be made in equal
monthly installments escalating annually up to $41,775,000 in 1997, and
$32,531,000 for the remainder of the initial lease term. Prior to the
Corporation's 1989 restructuring, basic rent expense (recognized on a leveled
basis in accordance with Statement of Financial Accounting Standards No. 13),
was $31,902,000 per year. Therefore, in the early years of the lease term,
required cash payments under the Operating Lease (not including the Expansion
Operating Lease) were significantly lower than the related expense recognized
for financial reporting purposes. Rental payments under the Expansion Operating
Lease are adjusted annually based on a Consumer Price Index with any increase
not to exceed two percent per year. Pursuant to the Restructuring Agreement, the
Operating Lease and the Expansion Operating Lease were amended to provide for
the abatement of $38.8 million of basic rent payable through 1998 and the
deferral of $15.1 million of rental payments, thereby reducing the Partnership's
cash flow to an amount estimated to be necessary only to meet the Partnership's
cash requirements. Effective on completion of the 1989 restructuring, lease
expense recognized on a level basis was reduced prospectively, based on a
revised schedule of rent leveling based on the agreed rental abatements. At
September 30, 1996 the Corporation had accrued the maximum amount of $15.1
million of deferred rent liability under the lease arrangements. The deferred
rent liability will become payable (i) upon a sale or refinancing of the
Claridge; (ii) upon full or partial satisfaction of the Expandable Wraparound
Mortgage; and (iii) upon full satisfaction of any first mortgage then in place.
Also as of September 30, 1996, $35.0 million of basic rent had been abated. The
remaining $3.8 million of available abatement is expected to be fully utilized
by the first quarter of 1997. Because the initial term of the Operating Lease
continues through September 30, 1998, rental payments after the $38.8 million
abatement is fully utilized will increase substantially to approximately $39.5
million in 1997, as compared to $31.7 million (net of projected abatement) in
1996. Additional abatements of rent totaling $500,000 are available as a result
of the acquisition of the option to purchase the Contingent Payment, and further
abatements could become available upon exercising the Contingent Payment option
(see Note 9, Other Noncurrent Liabilities).
19
<PAGE>
If New Claridge exercises its option to extend the term of the Operating
Lease, basic rent during the renewal term will be calculated pursuant to a
formula with annual basic rent not to be more than $29.5 million or less than
$24 million for the twelve months commencing October 1, 1998, and subsequently,
not to be greater than 10% more than the basic rent for the immediately
preceding lease year in each lease year thereafter. If New Claridge exercises
its option to extend the term of the Expansion Operating Lease, basic rent also
will be calculated pursuant to a formula with annual basic rent not to be more
than $3 million or less than $2.5 million for the twelve months commencing
October 1, 1998, and subsequently, not to be greater than 10% more than the
basic rent for the immediately preceding lease year in each lease year
thereafter. If the term of both leases is extended under their renewal options,
the aggregate basic rent payable during the initial years of renewal term will
be significantly below the 1997 level.
If the Partnership should fail to make any payment due under the
Expandable Wraparound Mortgage, New Claridge may exercise a right of offset
against rent or other payments due under the Operating Lease and Expansion
Operating Lease to the extent of any such deficiency.
New Claridge is obligated under its Operating Lease with the Partnership
to lend the Partnership, at an annual interest rate of 14%, any amounts
necessary to fund the cost of furniture, fixtures and equipment replacements.
The Expandable Wraparound Mortgage, granted by the Partnership to New Claridge,
by its terms may secure up to $25 million of additional loans to the Partnership
from New Claridge to finance the replacements of furniture, fixtures and
equipment and facility maintenance and engineering shortfalls. The advances to
the Partnership are in the form of FF&E Loans and are secured by the Hotel
Assets. One half of the FF&E Loan principal is due in the 48th month following
the advance, with the remaining balance due in the 60th month following the date
of issuance. In connection with the offering of $85 million of the Notes on
January 31, 1994, the Corporation agreed to use not less than $8 million from
the net proceeds of the offering to finance internal improvements to the
Claridge, which were funded through additional FF&E Loans. In connection
therewith, the Expandable Wraparound Mortgage Loan agreement as well as the
Operating Lease, and the Expansion Operating Lease were amended to provide that
the principal on these additional FF&E Loans will be payable at final maturity
of the Expandable Wraparound Mortgage. New Claridge is obligated to pay as
additional rent to the Partnership the debt service on the FF&E Loans.
The Expandable Wraparound Mortgage requires monthly principal payments
to be made by the Partnership to New Claridge, commencing in the year 1988 and
continuing through the year 1998, in escalating amounts totaling $80 million.
The Expandable Wraparound Mortgage, which will mature on September 30, 2000,
bears interest at an annual rate equal to 14% with the deferral until maturity
of $20 million of certain interest payments which accrued between 1983 and 1988.
In addition, in 1986 the principal amount secured by the Expandable Wraparound
Mortgage was increased to provide the Partnership with funding for the
construction of an expansion improvement, which resulted in approximately 10,000
square feet of additional casino space and a 3,600 square foot lounge. Effective
August 28, 1986, the Partnership commenced making level monthly payments of
principal and interest calculated to provide for the repayment in full of the
principal balance of this increase in the Expandable Wraparound Mortgage by
September 30, 1998. Under the terms of the Expandable Wraparound Mortgage, New
Claridge is not permitted to foreclose on the Expandable Wraparound Mortgage and
take ownership of the Hotel Assets so long as a senior mortgage is outstanding.
The face amount outstanding of the Expandable Wraparound Mortgage at June 30,
1996 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $120.8 million.
20
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of the report
99(a) Form of Letter to Holders of Notes.
(b) The Corporation filed no reports on Form 8-K during the quarter
ended September 30, 1996.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Claridge Hotel and Casino Corporation
- -----------------------------------------
(Registrant)
By: /s/ RAYMOND A. SPERA
-----------------------------
Raymond A. Spera
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer,
Principle Financial Officer and
Principle Accounting Officer)
Dated: November 8, 1996
22
<PAGE>
INDEX TO EXHIBITS
Exhibit
-------
EX99(a) Form of Letter to Holders of Notes
<PAGE>
EXHIBIT 99(a)
[THE CLARIDGE HOTEL AND CASINO CORPORATION LETTERHEAD]
[Date]
The Holders of the 11 3/4% Notes Due 2002
of The Claridge Hotel and Casino Corporation
[Address]
RE: Restructuring of the Notes
Dear Noteholders:
Today The Claridge Hotel and Casino Corporation (the "Claridge")
announced that, in view of its results for the third quarter of 1996 (which were
also announced today) and its expected results for the foreseeable future, it is
unlikely that the Claridge will be in a position to make the interest payment
due on the Notes on February 1, 1997. As a result, the Claridge will be
proposing to you and the other holders of the Notes that the Notes (along with
certain other obligations of the Claridge and its subsidiaries) be restructured.
The Claridge believes that if the Notes and its other obligations are
restructured, the Claridge will remain financially viable for the foreseeable
future. On the other hand, if the Notes are not restructured it is likely that
the Claridge will need to seek protection in a reorganization proceeding under
Chapter 11.
The purpose of this letter is to invite you to a meeting of Noteholders
to be held on Tuesday, December 3, 1996 at 11:00 a.m., E.S.T., at the offices of
Rogers & Wells, at 200 Park Avenue (50th floor), New York, New York. The purpose
of the meeting will be to discuss terms of a possible restructuring. It is the
desire of the Claridge to achieve a restructuring of the Notes as quickly and as
amicably as possible. It clearly is not in the interest of the Claridge or the
holders of the Notes for the operations of the Claridge to be disrupted by a
lengthy bankruptcy proceeding or for there to be lengthy and contentious
negotiations regarding the restructuring at significant cost to the Claridge and
ultimately its creditors, including the Noteholders.
Set forth below is the general basis upon which the Claridge would
propose restructuring the Notes and certain other of its obligations. THE
GENERAL TERMS SET FORTH BELOW SHOULD NOT BE CONSIDERED TO CONSTITUTE AN OFFER BY
THE CLARIDGE TO RESTRUCTURE THE NOTES UPON THESE TERMS. The Claridge anticipates
the Noteholders may form a steering committee or other representative body to
conduct negotiations, and no definite offer will be made by the Claridge until
the terms thereof have been agreed to in principle with those representatives,
at which time a definitive offer would be made to the Noteholders in general in
accordance with applicable law, including, if necessary, by means of a
prospectus contained in a Registration Statement filed with and declared
effective by the Securities and Exchange Commission. Claridge reserves the right
at any time to make a definitive offer regarding the restructuring in the form
of an exchange offer to the holders of the Notes, but, if necessary, any such
offer will be made only by means of a prospectus contained in a Registration
Statement filed with and declared effective by the Securities and Exchange
Commission. In any case, if the restructuring of the Notes is to occur generally
on the terms outlined below, the Claridge would anticipate that the
restructuring will not be completed until certain obligations of the Claridge
are extinguished or modified either consensually or through a "pre-packaged"
bankruptcy proceeding to which the principle creditors of the Claridge and its
subsidiaries have agreed.
<PAGE>
The Holders of the 11 3/4% Notes Due [Date]
2002 of The Claridge Hotel and -2-
Casino Corporation
Over the last several weeks we have been working with our financial
advisors, Dillon, Read & Co., Inc., to formulate a restructuring plan to
maximize value to Claridge's creditors and to insure the long term viability of
the Claridge. Preliminarily, our analysis demonstrates that in order to insure
these twin goals, a significant restructuring of the Claridge's debt obligations
is crucial. It is expected that such restructuring will involve the exchange of
the Notes for a combination of new Notes with a lower interest rate and
reduction in face amount of the New Notes, as well as the issuance of equity
securities in the Claridge representing more than a majority interest in the
Claridge. In addition, it is anticipated that the rent payable to Atlantic City
Boardwalk Associates, L.P. (the "Partnership") under the Operating Lease,
pursuant to which the Claridge rents from the Partnership the hotel and casino
used in its operations, would be abated substantially. The General Partners of
the Partnership have agreed in principle to this abatement, subject to the
Claridge's agreeing to exercise the option to extend the term of the Operating
Lease beyond its current expiration date in 1998 and agreeing to extend the
maturity date of the Expandable Wraparound Mortgage owed by the Partnership to
the Claridge from the year 2000 to 2003. Notwithstanding the agreement in
principal by the General Partners of the Partnership to restructure certain
arrangements with the Claridge, the Partnership has no obligation to agree to
such terms and it is only expected to do so if the General Partners are
otherwise satisfied with the restructuring of other obligations of the Claridge.
In addition, it would be anticipated that in connection with the restructuring
of the Claridge and its subsidiaries, the rights of the holders of the common
stock of the Claridge and of certain contingent payment rights of the Claridge
would be extinguished.
We look forward to seeing you at the meeting of the Noteholders to
discuss the terms of the proposed restructuring of the Notes.
Sincerely,
Robert M. Renneisen
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE
HOTEL AND CASINO CORPORATIONS FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000730409
<NAME> CLARIDGE HOTEL AND CASINO CORPORATION
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,605,000
<SECURITIES> 0
<RECEIVABLES> 19,326,000
<ALLOWANCES> 935,000
<INVENTORY> 302,000
<CURRENT-ASSETS> 32,360,000
<PP&E> 48,697,000
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0
0
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</TABLE>
